Source: "The labels put a gun to Spotify's head"

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Spotify is in a quandary. Unlike normal web business models, when it comes to streaming music, it actually gets more expensive the more you scale, not less, as we point out in our analysis today. The royalties charged by record companies see to that. In addition, despite the fact that many of the major record labels are known to be actual investors in Spotify, the startup is in a love-hate relationship with them of Shakespearean proportions, as today’s news hints at.

On the one hand record labels hate – and I mean hate – free streaming music sites which turn music into a service, not a product business limited by supply. Hence why the monthly play time for the free service has been capped so that you can’t suddenly replace your record buying habit with Spotify, as – in theory – you used to be able to do.

Our sources say Spotify has been deeply reluctant to do this. They know that the free product is driving users towards the premium one. Once you have built your playlists and shared via Facebook, Spotify takes on a life of its own. But after three years and a million paying customers it’s not doing it fast enough for the record labels’ liking.

So Spotify needs its free service like humans need oxygen.

As a well placed source told me “Spotify would never, ever choose to do this. The labels put a gun to Spotify’s head.”

“Every similar service will be capping streaming soon” they added “Spotify just had to balls to do it first.”

The question is, can Spotify work its magic in the US and get the file-sharing younger demographic hooked?

It’s a hard question to answer, especially when the guy who is who is feeding you is also pointing a gun at your head.